Wednesday, July 27, 2011

Capitalism and Patriotism

This will be the third (and final, for now) part in my recent discussion of capitalism.

I would imagine that the following definition of capitalism would be accepted by most as accurate: Capitalism is an economic system in which the means of production are privately owned and operated for profit, usually in competitive markets. I would also imagine that the vast majority of people would respond that capitalism is a key element to the success and growth of America. In contrast to most people's perception of socialism or communism, capitalism provides us with a means for individual success (or failure) based on competition with others in a fair market environment. The concept appeals perfectly with the American belief in the strength of the individual to pull up his boot straps and make it on his own. It also ties in nicely with our faith that our god will reward those who help themselves.

As I have said before in reference to other large topics, capitalism is the worst economic system, except for every other one. What I mean with those words, is that no economic system is perfect because its execution is dependent upon men, therefore all economic systems have their flaws. In the case of capitalism, many consider it the least worst when compared to others.

Yea, I know, words, words, words.

Lets look at it this way then. As a husband or wif, you love your spouse. As a parent, you love your children. As a brother or sister, you love your siblings. As a true friend, you love those few lifelong friends. Yet, there may be times when you are critical of your spouse, children, brother, or friend. When you feel compelled, out of that love, to express criticism of their actions or choices, constructive criticism, to help them get back to a path that will promote happiness rather than sadness.

But what method of criticism is there for an economic system (or any system) when it begins to harm the very people it should help? When its execution has evolved into a system where too many cards are held by too few players?

Like a family, it is generally accepted that the more effective criticism will come from within. Parent to child, brother to brother. In the case of capitalism then, it seems clear that the best form of criticism should emanate from the citizens who exist within its system. Like your family, when you hear criticism of your brother, you instinctively defend him, even if the faults described are true. So it follows that a Marxist pointing out the problems with capitalism will be demonized, his words ignored regardless of their accuracy.

I have a nagging suspicion that our current perception of capitalism has become immune to criticism because it has reached an almost religious status among its adherents. It has become beyond reproach. Expressing a negative opinion has become tantamount to hating America; those who do not support capitalism are not patriotic. And that is the danger.

Today's form of capitalism, has taken the belief in the individual and conferred it on a belief in a corporation. It has taken the faith that profit is the reward for success, and allowed it to become the only measure of success. It has evolved into the most basest form of the strong over the weak, and then, with a cynical connection to religion, determined that the weak deserved their fate because they are lazy, uninspired, unloved by god.

By granting the rights of individuals to corporations, we are assuming that they will act as collective people. But as I have pointed out in capitalism and profit, they do not treat their employees as people but as liabilities. All obstacles to a higher profit margin need to be addressed, even if those obstacles are the very people who do the work of the corporation. What else explains today's rising stock market, higher corporate profits yet continued unemployment?

In my mind, today's form of capitalism is anti-American, anti-patriotic. When a multi-national company is allowed to reap billions of dollars in profit yet pick and choose which country it shall pay taxes to, it has become anti-American. When any corporation places its own profit margin over the welfare of its employees, and even rewards its executives when they achieve those margins, by any means, it has become anti-patriotic.

Patriotism includes the concept of self-sacrifice. I am not a big believer in war, but have great respect for those who serve in our military because they are willing to make the ultimate sacrifice for their country. Why then do we not expect our corporations to sacrifice a few percentage points of profit to employ some more people or keep prices to the consumer in check?

When does profit become anti-American? When gas prices increase 25% while energy companies achieve record profits? When the very people who need health care services the most are the first to be denied health care insurance by an industry that turns billions of dollars in profit per quarter? When those making minimum wage are asked to do with a little less while those making $1250 per hour are exempted?

I think we need to turn a page in our adoration of capitalism, discuss frankly its problems, and act as a family to make corrections to its tenets that ultimately do not help America as a whole but instead reward too small a segment at the expense of too many.
And in doing so, demonstrate that we love our country more than we love capitalism, or corporations, or profit.

Tuesday, July 26, 2011

Capitalism and Corporate Profits

On vacation this week; our annual Poconos family vacation/reunion. Attendees are from five states (including Pennsylvania), include direct family, girlfriends of family, in-laws of family, friends of family, and lots of family. Last night we all went out to dinner together; 28 people, ranging in age from 2 to 85. Really cool.

Part one of my three part capitalism series detailed my view of the current state of capitalism as it relates to employment. Part two will review capitalism and corporate profits in today's environment.

In addition to the Philadelphia Inquirer, I also deliver the Wall Street Journal and the weekly Bloomberg Business Magazine. Occasionally, I glance through these publications, as well as reading the Inquirer's business section. To be fair, my interest in business is not a primary driving force for me. As I have said before, I admire those entrepreneurs who risk their time, money and (at times) home and family, to create and grow a business. Most of the opinions I am about to express are not directed to these small business persons. They still reflect the exercise of capitalism that existed in the post World War II years right up until the dawn of the multi-national corporation. It is in the continued growth of small businesses and their ability to create jobs that I feel we should direct more of our national resources.

I can not say that about capitalism and corporate profits. As stated above, I am aware of the business world via the reading matter mentioned already, as well as Internet searches for information related to these blogs. As always, I encourage anyone who reads my writing to corroborate what I write via the business news of your choice. What I am finding is that corporate profits are doing very well in this post-recession period. Second quarter numbers indicate much higher profits across the board for most reporting companies. Now, don’t get me wrong. I am not saying that I would prefer that our largest corporations be non-profitable. We need successful business concerns to drive our economy through invention of new technologies, the creation of new markets and opportunities and the increased employment of American workers. It is a cycle that has begun since the economic meltdown of 2008, but one which is not moving forward quickly enough.

My problem is that a significant portion of the increased profits is a result of a reduction in labor costs. I saw a report by one of the more prestigious players in the business world that estimated that 88% of the growth in GDP was going to corporate profits and only 1% to wages for employees. If we are to rely on the cycle of corporations receiving tax breaks and incentives to improve profitability so they can hire more workers then we need the beneficiaries of those activities to actually do their part. By most reputable reports, the largest corporations of America are sitting on $2 trillion of cash reserves. In other words, they have the money via profits and reserves, but are not hiring.

I maintain that they are not hiring because corporate profitability is their ONLY concern. The corporate boards and executives are only focused on meeting their targets. If it is, say 12%, and the numbers are pointing to 11.1%, the CEO and other responsible executives know they will be held accountable. (Of course, if they can’t attain that target and have to resign, they will still receive their multi-million dollar compensation packages as well as a generous parting gift, but that is grist for another blog). In the end though, decisions are made to reach that corporate profit goal, and those decisions focus first and foremost on costs. Labor costs. So, the labor force, the average worker who mans the assembly lines, drives the trucks, answers the phones, and, in general, makes up the vast majority of the work force for that corporation, gets reduced. Or loses a benefit. Or becomes part time. The result? The profitability number is reached, the CEO and executive board gets bonuses and unemployment/under employment in America stays unchanged.
Corporate profit has now morphed into an obstacle to higher employment rather than a creator of jobs.

To me, the mantra that reduced corporate taxes will increase employment seems outdated at best, a complete lie at worst. As long as profitability is the only yardstick, then expecting our large corporations to solve our unemployment problem is fruitless.
I am no economist as I have said before and will say again. But my 25 years in private sector jobs tell me that companies hire more workers when the orders increase. When more people are buying sporting goods, then more workers are needed to process, pick, pack and ship those orders. When more companies are shipping orders, more workers are needed to drive the trucks to move that freight and arrange the logistics to organize the flow of that production. Businesses, whether small or large, hire employees to meet the demand of the customers. Anyone who tells you hiring is slow because employers are afraid of the future cost of health care or the potential for higher corporate taxes are reflecting a scenario that just does not blend with reality. New orders, new customers, new sales are the main driving force of new hiring. More money in the hands of everyday Americans and more jobs will help stimulate those orders and sales.

Perhaps then we should ask those various corporate CEO’s and corporate board members to reflect on their part in the cycle and whether, in the long run, today's corporate profit might actually be a roadblock to tomorrow's improvement in business and increased growth in overall revenue. If, as the conservatives claim, government stimulus is not the answer then what stimulus can/should the private sector provide to gain traction against the stagnant level of unemployment. What profits are they willing to sacrifice today, to prove that the proper exercise of capitalism will enable growth in middle class incomes resulting in increased demand for products and services tomorrow.

Monday, July 25, 2011

Newlyweds in New York

A few weeks ago, I had an in-depth discussion with an acquaintance of mine about a variety of topics, including gay marriage. Ironically, this discussion came just a day or two before the historic legalization of gay marriage in New York State.

Quick background. The gentleman in question is elderly, mid to late 70's. He is a devout Catholic who lives his life with the teachings of Jesus forefront in his mind. He attends church virtually everyday. He spent a number of years in seminary towards becoming a priest but did not pursue this call so he has a much stronger knowledge of the dogma and teachings of his religion than most. Before we broached the subject of gay marriage we had touched on many topics including politics, greed, helping the less fortunate, life choices, etc. In many areas, we were in sync with our opinions, not perfectly the same, but close in most respects. Until we hit on gay marriage.

While not one with the extreme position that gay men and women are condemned to hell for that sexual orientation, he still held firm in his belief that the gay lifestyle was a life style choice and that those with thoughts of attraction to the same sex needed to seek help to tame those urges. While he did not say they could "pray away the gay", he clearly believed that people with these desires needed to control their urges, just as a married man (or woman) needed to resist the temptation of adultery. He was not mean-spirited in his opinions of gays but stated as fact that the vast majority of societies throughout history had disapproved of same sex activities and relationships and that the very existence of the human race was dependent on marriage between man and woman.

And, of course and most importantly that God did not approve.

When I asked him how he knew that God did not approve of gay marriage, he easily cited words from various holy books, not just the bible. When I pointed out that these books were written by men, he quickly responded that they were inspired by God. While he clearly believed in the bible and its words, he was not ignorant of the holy words of the other major religions so he was not of the mindset that his religion was the only true path to God/heaven/salvation, etc. Again, he was/is a tolerant man, and in so many ways a wonderful role model. I would be hard pressed to say or think that he will not be rewarded with the salvation that he believes awaits him after death.

Yet, I also believe he is dead wrong on this issue.

So, congrats to all the gay and lesbian newlyweds who were legally married these last few days in New York. May your marriages be filled with all the happiness that you deserve for making such a commitment. May your families, neighbors and friends rejoice in your new status and celebrate with you this new privilege.

I don't envy your position. You will be judged in a different light than the heterosexual community of married couples. Your failures will be magnified, your successes ignored. You will be held to a different standard just as biracial couples were, and still are in many parts of our world.

I had another conversation along these lines just yesterday with a young woman. I stated my sincere belief that my grandchildren/her children may very well look upon this debate about gay marriage incredulously, just as we look at those same debates in our recent past that surrounded interracial marriage. She agreed, although not with the same certainty that I have. She related a story of her grandparents' children and how one of the four had turned back the clock in his perceptions of the roles of women and men. Despite having been raised in a very forward thinking environment, he was not in favor of women working outside the home. Her comments led to a discussion of individuals, as well as society's reaction to change and how a certain percentage of people will react by looking to the past for examples of how to live, rejecting the changes as too radical. In effect, finding the changes went beyond their comfort zones.

So, the pendulum swings, forward, backward. We advance, we step back and evaluate, we advance. Let's hope that we use tolerance as one of our guiding posts in this process so that regardless of whether we, as individuals are comfortable with the changes, or find ourselves seeking solace in past ways, we agree to treat those who react differently to change, as well as those who are the focus of the change, with humanity.

Wednesday, July 13, 2011

Recent Deficit Discussions

First, I feel like I am flattering the participants when I refer to the deficit discussions as "discussions". My American Heritage dictionary defines discussion as an earnest conversation. While no one really knows what goes on behind closed doors, especially closed doors with politicians behind them, what information we do have seems to indicate that while there may have been conversation, it did not appear to be earnest. While it is clear to me that the republican representatives were only interested in talking, not negotiating, I have also heard it said that President Obama offered to double down on the original $2 trillion dollar spending cut plan because he knew that the tax hikes he was proposing would never be agreed to by the republicans, especially the tea party republicans. In other words, he called their bluff.

What a sad state of affairs when the leaders of our country can not work together to solve our nation's problems.

I guess that cat and deer I saw working together to cross the street last week are an example not able to be matched by our elected officials.

The latest "he said what?" that I heard came from House Speaker Boehner. He said that the need to raise the debt ceiling is President Obama's doing, so he is willing to allow the debt ceiling to rise as long as his caucus has an out that they can use to save face with their constituents. It is sad that the speaker and his caucus are in this predicament as they know very well that any budget, including the one they passed earlier this year, will require an increase in the debt ceiling. To make matters worse, the extreme faction of this group wants to adopt an amendment to the constitution that would require a balanced federal budget. Really?! Considering that the military budget was just passed with an increase over last year by those very same people, it is truly amazing that their constituents don't see through their bluster about balancing the budget. As a friend recently told me, the level of economic misinformation among our citizenry is disappointing.

But getting back to the speaker's claim that the debt ceiling is the president's problem. Hmm, let me see. The debt ceiling was raised virtually every year with overwhelming republican support during the Bush years. Since 1980, the deficit itself doubled under Reagan, increased dramatically under Bush I, increased somewhat under Clinton, doubled again under Bush II and is now at a record pace under Obama. If we check who controlled congress during that same time, we find that the house of representatives was controlled by democrats more than half the time, especially during the early 1980's. But since then, it was a republican controlled house during most of Clinton's presidency and for the first 6 years of the Bush II administration.

So, it appears that the facts dispute Boehner's claim. Clearly, the current debt problem of this country is the problem of both parties. It took them both to create this debt, and it should take both to address it. Too bad that both House Speaker Boehner and Senate Minority Whip McConnell would rather pretend that they have not been part of the problem and allow the president to raise the debt ceiling on his own. They are clearly more concerned with playing politics than solving our problems.

It will be even more interesting how they approach the deficit and debt should we have a republican president in 2012. Perhaps those discussions will take place with adults in the room who are earnest as opposed to children who take their ball home when they don't get their way.

Thursday, July 7, 2011

Capitalism and Income Distribution

If I haven't mentioned it lately, I am a sports fan and undoubtedly, I spend too much time watching sports on TV. When I read my daily newspaper, I read the sports section first. Currently, baseball is the sport in the spotlight, especially in the Philadelphia area as we are blessed with a fantastic team led by a superior pitching staff. When I watch the games, I am aware of the different pitches that these players use to retire the opposing hitters, how they look when thrown, even when and why the different types of pitches, fastball, slider, sinker, curve are thrown, and the numerous permutations of each pitch. Not to mention to where (which part of the strike zone, or even better, which part of the not-a-strike zone) the pitches are aimed. It can be a fascinating chess game withing the sport, pitcher against batter.

There is another curve, the Lorenz curve, that I wish more baseball fans, indeed more citizens were aware of. This curve is a way for economists to measure what portions of a population are responsible for the income within a group. It is the analysis of this curve that leads to statements such as 10% of the wage earners are responsible for 40% of the income. The closer the curve comes to a horizontal line, the more equally is the income distributed in that group/country. From this curve, economist then create a number called the GINI Coefficient that reflects the level of income equality, or level of income disparity depending on your perspective. The higher the GINI coefficient, the less equal is income distribution, the lower the number, the more equal.

Yea, you know where I am going with this, don't you!!

Rather than enumerating the various numbers, see below a link to the data that I found in Wikipedia which you can cut and paste it into your browser. The data sheet includes a cool interactive tool so that you can sort the various columns other than as it is listed in alphabetic order.

A quick glance at the tables show you that the GINI coefficient for the United States (just over 40) puts us just behind Sri Lanka, Georgia (the ex Soviet country), Ghana, and Turkmenistan (another ex Soviet country), and just ahead of Senegal, Cambodia, Thailand, and Burundi. We are grouped with countries not known for their economic strength, nor their human rights record.

The Nordic countries, Denmark, Sweden, Norway, Finland have 4 of the top 8 lowest GINI scores. Japan is number two. Among others, Germany, South Korea, Turkey, Canada, France, Switzerland, Poland, Spain, Italy and the UK all have lower coefficients.

What bothers me, other than this increasing trend, is the fact that there are many people who will either deny that this situation exists, deny that it is necessarily a bad thing, and/or pretend that unregulated capitalism which results in the rich getting richer to the detriment of the rest, is not a factor of this problem.

To be fair, however, I also read an article that dismisses my belief that income inequality is a problem. This article cited numerous statistics that demonstrated that the poor in America are actually very much better off than the poor, not only in other countries, but even in comparison with the poor of past Americas, say 19th century or early 20th century America. Simple things like access to indoor plumbing, owning TV's, owning a car, having air conditioning, etc. All true. Clearly, there are a host of countries (probably even countries that have lower GINI scores) where the truly poor live in squalid conditions that are far worse than anything in America.

But for me, showing me a picture of the living conditions in some sub-Saharan country and saying, see, our poor don't have it so bad, is an incredibly limited yardstick. How do our poor stack up against those in countries more like ours, say Germany or Japan? Besides, we all know that any comparison is relative. In a place where the average income is $30 a month, someone making $60 is well off. But in America, the average yearly wage is in the upper $40's to low $50's so someone earning $8 per hour (about
$16K per year) is poor in comparison, whether or not they own an air conditioner.

Regardless of what some people might say, more equal wealth and income distribution is not the same as exactly equal. I am not advocating that everyone should earn the same salary regardless of position or contribution. There are people who clearly do not participate in our economy and our goal should be to provide the tools, such as education, skills training, and yes, temporary economic assistance, so that they can become productive members of our nation.

But how do we justify when someone earns 100, 300, even 1000 times the salary of others in the same company? To illustrate how this trend to higher salaries for the top wage earners has blossomed, check out the data from the census tables which can be accessed through the following website.

As you can see, the first chart details that 5% of families earned over $200K per year in 2008 while 8% earned under $15K. Even more illuminating, the second chart illustrates that in 1980, 8.8% of families earned under %15K while 13.2% earned over $100K, yet by 2008, while 8.1% still earned under $15K, a whopping 26% now earned over
$100K. Is it better for a country to have all people experience the benefits of a growing standard of living or just some?

If those earning $7.50 and hour made $10 instead while those earning $51 made $48, would the benefits of that extra money for the lower wage earners outweigh the detriments to those who saw their income drop a bit? Would it be better for America if more people felt economically comfortable? Would it hurt America if less people felt "rich"?

Perhaps the real question is, how do we redistribute income so that we maintain a strong middle class without rewarding those that do not work yet while still limiting the restrictions we place on the movers and the shakers so that they still have incentive to create. There are no easy answers, but we will never find an answer if we don't first admit that income inequality is a problem. And we will never find a solution if we continue to cling to the near religious belief that capitalism is a perfect economic system.

Monday, July 4, 2011

Holidays and Labor

I missed a delivery over the weekend (I had to turn around and go back) because I was distracted. I was distracted by a cat and a deer crossing the road about 100 yards in front of me. It appeared that the cat led the way. I couldn't tell if they stayed together when they finished crossing but it made me think that if cats and deer can work together then perhaps there is hope for Democrats and Republicans as well.

Happy 4th of July.

This morning I googled "labor force" and found that the US department of labor pegs the labor force of America at approximately 153 million people. Although technically, I worked today (there are no days off in the newspaper business), I count myself as one of the majority of workers who had off today, with pay.

But not everyone who is off today, is being paid. And not everyone is off today, as one can easily see at any shopping mall in the country. The fact is, in contrast with every other "western" nation, our country does not mandate annual leave or paid holidays. No employer is compelled to offer the day that celebrates our nation's birth as a day off from work, let alone off with pay!

Fortunately, most employers do count today as a paid holiday. Statistics I found indicate that for higher wage earners, upwards of 88% have off today with pay, and for lower wage earners roughly 66%. (I couldn't find the definition of higher and lower for those percentages, but I discerned that the line is drawn around the $60K per year line). For full time workers the percentage is very high also, but only about one in three part time workers have the day off with pay.

Strangely, one of the biggest reasons why most of us have off with pay, is a result of the work of the unions which negotiated paid annual leave (among other worker benefits we take for granted) with both public and private employers during the economic boom of the 20th century. I say strangely, because unions are under attack all across the United States, especially those that represent public employees. Most recently, Wisconsin and New Jersey legislatures, pushed by Republican governors, passed laws restricting the unions' ability to negotiate benefits. Union influence has steadily waned since its heyday in the 1970's; is it a coincidence that the standard of living for the American middle class has remained static since that time?

Perhaps you will find yourself at a store today. Chances are, it will be a "chain" store as opposed to a local one as it is these chains, department stores, food stores, home improvement stores, etc that traditionally average lower wages, and poor benefits. While some of the people you encounter will be getting paid overtime for working today, the vast majority will not. And while many will have volunteered to work, a large percentage of those volunteers are, in fact, getting paid extra (which is why they volunteered), but a much larger percentage had no choice. They lost the lottery and found their name on the schedule today.

As I have written many times before, America is a great place to live and I am proud to live here. In so many countries on earth today, I would not be able to sit in front of my computer and write the words you have just read. We clearly value freedom and the right to pursue happiness as individuals.

But we can do better!! Business is all well and good but it should not be the only yard stick for our decisions. Public policies that grant all the cards to employers will only continue to erode everyday Americans' ability to enjoy the freedoms of which we are so blessed. Politicians who have no qualms about cutting wages and benefits for workers who earn less than $50K per year, yet quake and moan at the prospect of raising taxes of those earning over $500K per year or (egads!) limiting salaries to $10 million per person, are not looking after my interests, nor, in my opinion, the interests of those who comprise the backbone of this country.

So, again, happy 4th of July. I hope that you are able to enjoy the day as a paid holiday. Be careful working in the yard and grilling your meal. And, if you do go out to shop, be extra nice to the cashier or stock person or sales rep you may encounter. Remember, they are also celebrating our freedoms and our country's birth.